Czech Republic

Second reduced 10% VAT and other tax changes effective from 2015

The Chamber of Deputies of the Czech Parliament has passed an amendment to the VAT Act and an amendment to the Income Taxes Act. If the amendments are approved by the Senate and signed by the President, most of the proposed changes will take effect on 1 January 2015.

The amendment to the VAT Act will introduce a second reduced VAT rate of 10% that will apply to pharmaceuticals, books and baby formula. The government originally wanted the reduced rate to apply also to baby nappies. However, this is not allowed by EU laws. For VAT payers, this will mean that they have to adjust their systems, as most of them are set for two VAT rates only. In addition, more attention will have to be paid to invoicing and claiming a VAT deduction on such items.

The amendment to the Income Taxes Act will introduce the following in particular:

  • An increase in the tax credit for a second and third child
  • The possibility to claim basic tax relief for working pensioners
  • A threshold of CZK 2,000,000 introduced on lump-sum expenses of 80% and 60% respectively that can be deducted from the tax base by sole traders
  • A restriction on deductions of private life insurance on the non-investment part only (only the premium paid to cover insured risks)